Peter Morici: Economy will drag on Trump’s re-election hopes
The U.S. economy is delivering bad news to the White House. Second-quarter growth was only 2.1% and is not likely to return to 3% on a sustained basis. Significant wage increases, booming corporate profits, and double-digit stock grains SPX, -1.22% are not likely in the months leading up to the presidential election.
Lackluster economies sunk the re-election hopes of Jimmy Carter and George H.W. Bush. Donald Trump’s failure to deliver meaningful health-care reform and the pain inflicted on Midwestern farmers by Chinese retaliation against his tariffs make matters worse.
Forces having nothing to do with who occupies the Oval Office negatively affect U.S. growth. His trade wars notwithstanding, China and Europe are stuck in the mud and saddled by political dysfunction.
Chinese President Xi Jinping’s strategy for dictatorial control penalizes private companies and entrepreneurs to boost its highly inefficient state-owned enterprises and squanders a lot of economic resources and credibility with foreign investors.
The U.S. economy is creating lots of jobs but skills shortages abound because the nation’s higher education system spends too much and delivers too little. It graduates fewer than 60% of students admitted, many graduates lack critical thinking and problem-solving skills essential for professional work, and even more lack job-ready, specialized skills.
Trump’s top advisers — National Economic Council Director Larry Kudlow and Treasury Secretary Stephen Mnuchin — need some soul searching about tax cuts and resisting measures that could more quickly resolve trade issues with China.
On the demand side, growth must be driven by consumer spending, business investment and fixing the trade deficit — the latter sends too many dollars abroad that don’t come back to purchase U.S. goods.
Consumer spending has proven robust but is shifting from big-ticket autos to high-tech gadgets, Uber and other services. Notably a good deal of the job growth is in low skilled and highly skilled categories — middle-skilled occupations are hollowing out.
Principal competitors — China, Japan and Germany — have growth policies premised on undervalued currencies that cheapen exports and protect domestic manufacturing — but Trump’s trade war is a bust. The trade deficit is up over $100 billion on his watch.
Negotiations with China are at a stalemate, because the president is reluctant to deliver a knockout punch.
Multinationals are diversifying supply chains from China. Despite the promises of Trump trade adviser Peter Navarro, factories have moved to other Asian locations, not America. Consequently, American businesses are investing their tax-cut money abroad and U.S. imports of manufactures are shifting their origins rather than creating new jobs here.
Meanwhile, Chinese retaliation has pushed down U.S. exports.
Not able to get China off the table, Trump can’t take on German and Japanese protectionism — once and for all.
Tweeting and telling voters what a great relationship he has with a dictator and human-rights abusers like Xi only works when you want to become president. More than bravado and halfway measures are needed to fix what’s broken with the American economy.